COST SAVINGS KEEP JAPAN´S CARMAKERS ON UPWARD ROAD / THE FINANCIAL TIMES

Cost savings keep Japan’s carmakers on upward road

Honda lifts forecasts and Toyota posts record results — as US rivals issue profits warnings

Kana Inagaki in Tokyo


Newly manufactured Honda cars ready for export in Yokohama, Japan © Reuters


Few international carmakers are bullish enough to raise their guidance in the uncertain age of Donald Trump’s global trade war — with the exception of Honda.

As rivals in Detroit issued profit warnings one after the other, Honda boosted its net profit forecast by 7.9 per cent while Toyota beat analyst expectations with record first-quarter profits. Even Subaru, with its heavy reliance on US sales, kept its annual forecast unchanged on Monday.

Japanese carmakers face the same headwinds as rivals elsewhere, including rising steel and aluminium costs due to new metals duties, changes to Chinese import tariffs and the threat of further tariffs on cars exported to the US.

But what sets them apart, analysts say, are strong sales in other Asian markets and above all, the traditional art of rigorous cost savings.

At Toyota, chief executive Akio Toyoda has pushed for a huge cost-cutting programme that draws on the group’s vaunted kaizen philosophy and relentless elimination of waste.

For the April-to-June quarter, a reduction in expenses totalling ¥65bn ($583m) helped to offset a ¥50bn hit to profits from rising raw material costs as Toyota reported a 7.2 per cent year-on-year rise in net profit.

“It’s important to create a climate where every employee has a strong awareness for costs boiling down to the use of a single pencil,” said Masayoshi Shirayanagi, Toyota’s senior managing officer.

The company’s robust first-quarter results were also driven by a 40 per cent rise in operating profits in Asia, led by strong sales in Thailand.

Honda executives also cited cost-cutting efforts as helping to absorb rising raw material costs, while the group also had rising motorcycle sales in India, Indonesia and Vietnam. Its quarterly net profit rose 18 per cent.

Analysts at CLSA and Credit Suisse projected additional rises in Honda’s guidance despite the negative impact of flooding in Mexico and the reduced vehicle sales outlook in North America and Europe.




Still, sentiment among Japanese auto executives remains somewhat chilly as they express concern about the volatile and unpredictable nature of trade discussions involving the US.

“We don’t actually know what kind of change will happen at this point,” said Joji Tagawa, corporate vice-president of Nissan, which reported a 14 per cent decline in net profit during the first quarter.“We can conduct various simulations as to what response would be effective but we can't make any decision before the US government outlines its policy,” he added.

Japanese officials will hold trade talks in Washington this week at which they hope to counter US pressure to enter bilateral trade talks and the 25 per cent tariff on imported vehicles and components being considered by the Trump administration.

Toyota, which exported 700,000 vehicles from Japan to the US last year, has estimated that the additional tariff would add up to $6,000 to the cost of each vehicle.

CLSA estimates that vehicle prices would rise on average by 13 per cent if a 25 per cent tariff was imposed, with a 9.9 per cent increase for Ford, 11.9 per cent for GM, and 16 per cent for Subaru and Nissan. In terms of financial impact, Subaru would be the most affected, with a 59 per cent projected fall in full-year operating profit, followed by a 30 per cent decline for Honda.

“It's not the case that Japanese carmakers are visibly doing better than rivals elsewhere,” said Takaki Nakanishi, a former Merrill Lynch analyst who runs his own research group.

“For the first quarter and in terms of annual guidance, the Japanese carmakers may be in the winning group. But once the tariffs are imposed, they will immediately be in the losing end.”